Morgan Stanley analysts expect housing prices to continue to slide, reaching new depths in 2012, as home sales have yet to bottom and appear to be lower than two years ago. Analysts said owner-occupied housing hasn't improved despite some private-sector job gains, increased household formations, and mortgage rates at generational lows. As lending standards tighten, mortgage originations backed by the Federal Housing Administration are also slowing and further hindering homeownership, according to Morgan Stanley. "There is a very good chance that both total home sales in 2010, as well as the average of home sales in 2009 and 2010, will be lower than in 2008," the analysts said in the investment giant's recent Housing Market Insights report. Morgan Stanley expects 2011 home prices to fall 5% to 10% from this year with four years of flat prices after that, although "the risk of slight additional downside in prices, and extension of the trough to 2012, has increased." The analysts said continued government support of lending by Freddie Mac, Fannie Mae, and the FHA remains critical, but if no federal policy changes are enacted, the affects "could range from marginally to significantly negative." Steep declines in housing activity and prices are possible upon considerable cuts to FHA lending, and the analysts don't "see any realistic credit providers" to replace the government agency. Reducing the current shadow inventory of 8 million homes, which are valued at an aggregate $1.68 trillion, is of utmost priority. This can be met by addressing negative equity and expanding short-sale programs to preserve mortgage quality and minimize losses, according to the analysts. Write to Jason Philyaw.